Necessary expense- appropriate and helpful in the development of taxpayer’s business.
Ordinary expense- normal or usual to the line of business and are appropriate/helpful in the development of the taxpayer’s business.
Business expense must be substantiated with (Rule of Substantiation)
1. receipts or adequate records
2. amount of expense
3. date and place of expense
4. purpose of expense
5. professional or business relationship of expense
otherwise, they should be disallowed
Representation and entertainment expenses, deductible if
1. used primarily for the furtherance of employer’s trade or business;
2. only to the extent allowable- directly related to the active conduct of the employer’s trade or business; and
3. subject to the rule of substantiation
Wednesday, December 17, 2008
Deductions, Principles governing deductions, kinds of deductions
Deductions- items or amounts which the law allows be deducted from gross income on order to arrive at the taxable income.
Basic Principles Governing Deductions
2. he must be able to prove that he is entitled to the deduction authorized or allowed.
Kinds of Deduction
1. Optional standard deductions- deduction based upon a flat rate percentage of 40% of the gross income which is allowed to be taken in lieu of itemized deduction for individuals;
2. Itemized deductions for
a. individual taxpayer engaged in business or practice of profession
(i) raw materials, supplies and direct labor;
(ii) salaries of employees directly engaged in activities in the course of our pursuant to the business or practice of their profession;
(iii) telecommunications, electricity, fuel, light and water;
(iv) business rental;
(v) depreciation;
(vi) contributions made to the government and accredited relief organizations for the rehabilitation of calamity-stricken areas declared by the president and;
(vii) interest paid or accrued within a taxable year on loan contracted from accredited financial institution which must be proven to have been incurred in connection with the taxpayer’s profession, trade or business
b. corporate taxpayers whether domestic or resident foreign
(i) business expenses;
(ii) interest (paid on indebtedness)
(iii) taxes (except certain taxes like income tax)
(iv) losses (not compensated for by insurance or otherwise)
(v) bad debts (actually ascertained to be worthless)
(vi) depreciation of property
(vii) depletion of natural resources
(viii) charitable and other contributions
(ix) pensions trust contributions of employees.
3. Special or extraordinary- granted because of the fact that there are laws applicable and transaction peculiar to them only, these are in addition to the itemized deductions allowed by law.
a. non-life insurance and mutual fund companies
b. estates and trusts
c. in addition to ordinary and necessary expenses, private education institutional institution may, at its option, elect either:
(i) deduct expenditures or otherwise considered as capital outlays of depreciable assets incurred during the taxable year for the expansion of school facilities or
(ii) deduct allowance for depreciation thereof.
Personal Exemptions, Kinds of personal exemptions
Personal Exemptions- are arbitrary amounts allowed as deductions from gross income of the individual taxpayer from compensation, business (self-employment) or practice of profession. Personal exemptions in a sense represent the personal, living or family expenses of the taxpayer.
Kinds of personal exemptions
Basic personal exemption- this exemption is allowed on account of the civil status of the taxpayer;
The new law increases the personal exemption of individuals to P50,000.00. It removes the personal exemptions amounting to P20,000.00, P25,000.00 and P32,000.00 for single, head of family and married individuals, respectively. Moreover, the definition of a “head of family” has been deleted in Section 35.
Additional exemptions- this exemption is further allowed to the taxpayer by reason of his qualified dependent children.
The new law increases the additional exemption from P8,000.00 for each dependent to P25,000.00 for each dependent, not exceeding four (4).
A ‘dependent’ means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect.
The additional exemption for dependent shall be claimed by only one of the spouses in the case of married individuals. And in the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children. Provided that the total of additional exemption that may be claimed by both shall not exceed the maximum additional exemptions allowed.
Kinds of personal exemptions
Basic personal exemption- this exemption is allowed on account of the civil status of the taxpayer;
The new law increases the personal exemption of individuals to P50,000.00. It removes the personal exemptions amounting to P20,000.00, P25,000.00 and P32,000.00 for single, head of family and married individuals, respectively. Moreover, the definition of a “head of family” has been deleted in Section 35.
Additional exemptions- this exemption is further allowed to the taxpayer by reason of his qualified dependent children.
The new law increases the additional exemption from P8,000.00 for each dependent to P25,000.00 for each dependent, not exceeding four (4).
A ‘dependent’ means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect.
The additional exemption for dependent shall be claimed by only one of the spouses in the case of married individuals. And in the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children. Provided that the total of additional exemption that may be claimed by both shall not exceed the maximum additional exemptions allowed.
Tuesday, December 9, 2008
Gross Income, Items of Gross Income, Compensation Income,
Gross Income- income of whatever kind and in whatever form derived from any source but not including items of gross income subject to final income tax and exempt income.
Items in Gross Income
1. compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions and similar items;
2. gross income derived from business
3. gains derived from dealings in property;
4. interests;
5. rents
6. royalties
7. dividends
8. annuities
9. prizes and winnings
10. pensions
11. partner’s distributive share of the gross income of the general professional partnership
COMPENSATION INCOME- all kinds of compensation for services rendered as a result of an employer-employee relationship, which includes
1. salaries, wages and fees;
2. commissions paid to salespersons or those paid on insurance premiums
3. compensation for services on the basis of a percentage or profits
4. honoraria
5. bonuses, tips
6. allowances for transportation, representation and entertainment
7. pensions or retiring allowances paid by private persons or by government except pensions exempt by law from tax)
8. amounts received for refraining from rendering services
9. amounts received as an award for special services or suggestions to employer or for the prevention of theft/ robbery.
10. Prizes won in competitive contest conducted for non-commercial or commercial purposes (for services rendered)
Exclusions- incomes exempt from income tax
Items excluded from Gross income
1. proceeds of life insurance
2. amounts received by insured as return of premium
3. gifts, bequest and devisees
4. interests on government securities and obligations
5. compensation for injuries or sickness
6. income exempt under treaty
7. retirement benefits, pensions, gratuities
8. miscellaneous items
a. income of foreign governments;
b. income from any public utility or from the exercise of any essential government function
b. income from any public utility or from the exercise of any essential government function
accruing to the government or any of its political subdivisions;
c. income derived as rewards under sec. 316 of the NIRC;
d. interest earned from deposits maintained in banks under the expanded
c. income derived as rewards under sec. 316 of the NIRC;
d. interest earned from deposits maintained in banks under the expanded
foreign currency deposit system
e. prizes and awards made primarily in recognition of religious, charitable, scientific,
e. prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literacy or civic achievement but only if the recipient was selected
without any action on his part to enter the contest or proceeding and is not required
to render substantial future services as a condition to receiving the prize or award
f. interest exempt under special laws.
f. interest exempt under special laws.
Income, Capital, Income Tax, Requisites
Income - amount of money coming to a person or corporation within a specified time whether as payment for services, interest or profits from investments other than mere return of capital.
Capital- fund of material wealth that can be used for the further production of wealth to satisfy human wants or tools of production or resources of business enterprise.
Income Tax- tax on the net income or the entire income realized in one taxable year levied upon corporate or individual incomes in excess of specified amounts and less certain deductions and specified exemptions in cases permitted by law.
Requisites for Income to be Taxable
1. There must be gain or profit;
2. The gain must be realized or received and
3. The gain must not be excluded by law or treaty from taxation.
Taxable income- amount of income upon which the tax rate prescribed by law is applied to get the amount of income tax payable.
Wednesday, December 3, 2008
Income, Requisites for Taxable Income,
Income Defined - gained derived from labor, capital, or both including the profit derived from the sale or exchange of capital asset.
Income distinguished from
1. Revenue- this term includes all funds or income derived by the government from taxes and other sources. Income is to private entities as revenue is to government.
2. Capital- Income refers to the flow of wealth during a definite period of time, while capital is the fund or a property existing at one distinct point of time.
3. Receipts- consist of capital and income and therefore is broader in scope that income.
Tax Base- a taxpayer’s taxable income for the taxable year.
Taxable Income- the amount of income upon which the tax rate prescribed by law is applied to get the income tax due, depending on the kind of taxpayer.
- Means the pertinent items of gross income specified in the NIRC, less the deductions and/ or personal and additional exemptions if any authorized for such types of income by the NIRC.
Net income must be computed with respect to a fixed period, which for individual taxpayers is a calendar year or a period of 12 consecutive months ending December 31 of every year. Corporations however, may file their income tax returns on a fiscal year basis, or for a period of 12 consecutive months ending on the last day of any month other than December.
Requisites for income to be taxable
1. there must be gain or profit
2. the gain must be received or realized
3. the gain must not be excluded by law or treaty from taxation. Income need not be in cash, it is sufficient that it may be appraised in terms of money.
Income distinguished from
1. Revenue- this term includes all funds or income derived by the government from taxes and other sources. Income is to private entities as revenue is to government.
2. Capital- Income refers to the flow of wealth during a definite period of time, while capital is the fund or a property existing at one distinct point of time.
3. Receipts- consist of capital and income and therefore is broader in scope that income.
Tax Base- a taxpayer’s taxable income for the taxable year.
Taxable Income- the amount of income upon which the tax rate prescribed by law is applied to get the income tax due, depending on the kind of taxpayer.
- Means the pertinent items of gross income specified in the NIRC, less the deductions and/ or personal and additional exemptions if any authorized for such types of income by the NIRC.
Net income must be computed with respect to a fixed period, which for individual taxpayers is a calendar year or a period of 12 consecutive months ending December 31 of every year. Corporations however, may file their income tax returns on a fiscal year basis, or for a period of 12 consecutive months ending on the last day of any month other than December.
Requisites for income to be taxable
1. there must be gain or profit
2. the gain must be received or realized
3. the gain must not be excluded by law or treaty from taxation. Income need not be in cash, it is sufficient that it may be appraised in terms of money.
Nature, Purpose, General Principles of Income Taxation
Income tax- tax on the net income or the entire income realized in one taxable year, levied upon corporate and individual incomes in excess of specified amounts net of certain deductions and exemptions provided by law.
Nature and purposes of income tax
1. It is a national tax or one imposed by the national government under the National Internal Revenue Code;
2. It is an excise tax because it is imposed on the right to generate or receive income through labor, capital and others, and not or persons or property;
3. It is a direct tax since it is imposed on the person who is personally bound to pay the tax, a burden he cannot shift to another
4. Income tax is a general tax because it is primarily intended to provide large amounts of revenue to the government and secondarily to offset the regressive sales and consumption taxes, and to mitigate the evil of inequalities in the distribution of wealth;
5. It is progressive because the tax rate increases as the tax base increases.
General Principles of Income taxation in the Philippines
1. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines;
2. A non resident citizen is taxable only on income derived from sources within the Philippines;
3. An individual citizen who is working and deriving income abroad as an OFW is taxable only on income from sources within the Philippines Provided, that the OFW, who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an OFW.
4. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines.
5. A domestic corporation is taxable on all income derived from sources within and without the Philippines; and
6. A foreign corporation whether engaged or not in trade or business in the Philippines is taxable only on the income derived from sources within the Philippines.
Nature and purposes of income tax
1. It is a national tax or one imposed by the national government under the National Internal Revenue Code;
2. It is an excise tax because it is imposed on the right to generate or receive income through labor, capital and others, and not or persons or property;
3. It is a direct tax since it is imposed on the person who is personally bound to pay the tax, a burden he cannot shift to another
4. Income tax is a general tax because it is primarily intended to provide large amounts of revenue to the government and secondarily to offset the regressive sales and consumption taxes, and to mitigate the evil of inequalities in the distribution of wealth;
5. It is progressive because the tax rate increases as the tax base increases.
General Principles of Income taxation in the Philippines
1. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines;
2. A non resident citizen is taxable only on income derived from sources within the Philippines;
3. An individual citizen who is working and deriving income abroad as an OFW is taxable only on income from sources within the Philippines Provided, that the OFW, who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an OFW.
4. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines.
5. A domestic corporation is taxable on all income derived from sources within and without the Philippines; and
6. A foreign corporation whether engaged or not in trade or business in the Philippines is taxable only on the income derived from sources within the Philippines.
Nature, Sources and Interpretation of Tax Laws
TAX LAW- any law which provides for the assessment and collection of taxes for the support of the government and other public purpose.
Nature of Tax Laws-
1. Not political in nature
2. Civil and not penal
Sources of Tax Laws
1. Constitution
2. Legislation, including Presidential decrees and executive orders on taxation and tax ordinances;
3. Administrative regulations and rulings or opinions of tax officials including opinions of the Secretary of Justice, the Commissioner of the BIR, and the secretary of Finance;
4. Judicial decisions as those rendered by the supreme court and the court of tax appeals
5. Treaties
6. Legislative materials
Interpretation and Construction of tax laws.
Tax statutes must be given a reasonable interpretation considering the purpose and intent of the legislature; however they should not be construed as to make tax evasion possible. In case of doubt tax laws must be construed liberally in favor of the taxpayer and against the government.
Tax exemptions statutes on the other hand, being a surrender of the state’s power to impose taxes, are to be construed strictly against the person, entity, or property claiming the exemption and in favor of the government.
Nature of Tax Laws-
1. Not political in nature
2. Civil and not penal
Sources of Tax Laws
1. Constitution
2. Legislation, including Presidential decrees and executive orders on taxation and tax ordinances;
3. Administrative regulations and rulings or opinions of tax officials including opinions of the Secretary of Justice, the Commissioner of the BIR, and the secretary of Finance;
4. Judicial decisions as those rendered by the supreme court and the court of tax appeals
5. Treaties
6. Legislative materials
Interpretation and Construction of tax laws.
Tax statutes must be given a reasonable interpretation considering the purpose and intent of the legislature; however they should not be construed as to make tax evasion possible. In case of doubt tax laws must be construed liberally in favor of the taxpayer and against the government.
Tax exemptions statutes on the other hand, being a surrender of the state’s power to impose taxes, are to be construed strictly against the person, entity, or property claiming the exemption and in favor of the government.
Classification of Taxes
Classification of taxes
1. As to subject matter or object
A. personal, poll or capitation- tax of a fixed amount on individuals residing within a specified territory, without regard to their property, occupation or business.
Ex. Community tax (basic)
B. property- imposed on property, real or personal, in proportion to its value, or in accordance with some reasonable method or apportionment.
Ex. Real estate Tax
C. Excise- imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation, profession or business.
Ex. Income tax, VAT, Estate Tax, Donor’s Tax
2. As to who bears the burden of the tax
a. Direct- the tax is imposed on the person who also bears the burden thereof
Ex. Income tax, community tax, estate tax
b. Indirect – imposed on the taxpayer who shifts the burden of the tax to another
Ex. VAT, customs duties
3. As to determination of amount
a. specific – imposed and based on a physical unit of measurement as by head number, weight, length or volume. Ex. Tax on distilled spirits, fermented liquors, cigars
b. Ad Valorem of a fixed proportion of the value of the property with respect to which the tax is assessed. Ex. Real estate tax, excise tax on cars, non essential goods
a. specific – imposed and based on a physical unit of measurement as by head number, weight, length or volume. Ex. Tax on distilled spirits, fermented liquors, cigars
b. Ad Valorem of a fixed proportion of the value of the property with respect to which the tax is assessed. Ex. Real estate tax, excise tax on cars, non essential goods
4. As to purpose
A. general, fiscal, or revenue- imposed for the general purpose of supporting the government. Ex. Income tax, percentage tax
B. special or regulatory- imposed for a special purpose, to achieve some social or economic objective. Ex. Protective tariffs or custom duties on imported goods intended to protect local industries.
A. general, fiscal, or revenue- imposed for the general purpose of supporting the government. Ex. Income tax, percentage tax
B. special or regulatory- imposed for a special purpose, to achieve some social or economic objective. Ex. Protective tariffs or custom duties on imported goods intended to protect local industries.
5. As to scope or authority imposing the tax
a. national- imposed by the national government ex. NIRC, custom duties
b. municipal or local- imposed by municipal corporations or local governments ex. Real estate tax,
a. national- imposed by the national government ex. NIRC, custom duties
b. municipal or local- imposed by municipal corporations or local governments ex. Real estate tax,
6. As to graduation of rates.
a. proportional- based on a fixed percentage of the amount of the property, receipts or on other basis to be taxed ex. Real estate tax, vat
b. progressive and graduated- the rate of the tax increases as the tax base or bracket increases ex. Income tax, estate tax, donor’s tax
c. regressive- the rate of tax decreases as the tax base or bracket increases
d. degressive- increase of rate is not proportionate to the increase of tax base.
a. proportional- based on a fixed percentage of the amount of the property, receipts or on other basis to be taxed ex. Real estate tax, vat
b. progressive and graduated- the rate of the tax increases as the tax base or bracket increases ex. Income tax, estate tax, donor’s tax
c. regressive- the rate of tax decreases as the tax base or bracket increases
d. degressive- increase of rate is not proportionate to the increase of tax base.
Introduction to Taxation
Introduction to Income Taxation
The inherent and fundamental powers of the State are: 1. Police power,2. Power of eminent domain and 3, power of taxation. Taxation is an inherent right of the state. A state as a matter of essential necessity , is deemed conferred with the right and power of taxation from the moment of its creation. Like the other inherent powers, taxation emanates from the sovereign character of the state. It is an inherent prerogative of sovereignty such that it can be exercised and enforced even without any constitutional or statutory provision authorizing taxation. The constitution therefore, does not confer but simply confirms this awesome and immeasurable power of the state to tax its inhabitants, and it confirms by defining and delimiting the same.
Taxation is fundamental and necessary to the survival of any government. The government is obliged to protect and render basic services to its inhabitants, and the latter, in turn, are required to support their government in terms of enforced and mandatory contributions called taxes. This reciprocal and mutually beneficial arrangement, which has been described as a symbiotic relationship is what makes taxation necessary not only to the general well-being of the State but to its very survival as well.
Clearly then, the principal purpose of taxation is to raise revenue to support the government and its services, without which the government cannot exist. Thus, quite appropriately, taxes are regarded as the lifeblood of the government. In light off this, it is not difficult to conclude that taxation shapes the government and its policies.
It has been said however that the power to tax includes the power to destroy. Rhetoric or not, absolute or qualified, this statement may as well serve as a timeless and timely reminder that taxation being levied against person, property, rights and privileges, can cause injustice if abused by the taxing authority. It is for this reason that the constitutional and statutory provisions on taxation are necessary if only to restrain and properly guide the government in the exercise of this raw and immense power. It is therefore a relief that in another case, the judiciary corrected itself by stating that taxation does not involve the power to destroy for as long as this court sits.
It has been said however that the power to tax includes the power to destroy. Rhetoric or not, absolute or qualified, this statement may as well serve as a timeless and timely reminder that taxation being levied against person, property, rights and privileges, can cause injustice if abused by the taxing authority. It is for this reason that the constitutional and statutory provisions on taxation are necessary if only to restrain and properly guide the government in the exercise of this raw and immense power. It is therefore a relief that in another case, the judiciary corrected itself by stating that taxation does not involve the power to destroy for as long as this court sits.
The power to tax is exercised by the legislature whose good faith in the imposition of taxes is always presumed. Such presumption notwithstanding, under the principle of check and balance, the judiciary is empowered to inquire into the constitutionality or legality of a tax statute and also to ascertain whether or not it is for public purpose. But even then, the scope of judicial inquiry is severely limited in the sense that courts have no power to pass judgments on the overall propriety of a tax statute. The matters of what and whom to tax, at what rate and in what manner, as well as the determination of the situs thereof are strictly legislative prerogatives. Courts by reason of the principle of separation of powers cannot question the legislative wisdom behind a tax statue.
Scope of the Power of Taxation—it is comprehensive, unlimited, supreme and plenary, but subject to constitutional and inherent limitations
Constitutional limitations.
1. Observance of due process of law and equal protection of the laws. (sec, 1, Art. 3) Any deprivation of life , liberty or property is with due process if it is done under the authority of a valid law and after compliance with fair and reasonable methods or procedure prescribed. The power to tax, can be exercised only for a constitutionally valid public purpose and the subject of taxation must be within the taxing jurisdiction of the state. The government may not utilize any form of assessment or review which is arbitrary, unjust and which denies the taxpayer a fair opportunity to assert his rights before a competent tribunal. All persons subject to legislation shall be treated alike under like circumstances and conditions, both in the privileges conferred in liabilities imposed. Persons and properties to be taxed shall be group, and all the same class shall be subject to the same rate and the tax shall be administered impartially upon them.
2. Rule of uniformity and equity in taxation (sec 28(1)Art VI) All taxable articles or properties of the same class shall be taxed at the same rate. Uniformity implies equality in burden not in amount. Equity requires that the apportionment of the tax burden be more or less just in the light of the taxpayers ability to bear the tax burden.
3. No imprisonment for non-payment of poll tax (sec. 20, Art III) A person cannot be imprisoned for non-payment of community tax, but may be imprisoned for other violations of the community tax law, such as falsification of the community tax certificate, or for failure to pay other taxes.
4. Non-impairment of obligations and contracts, sec 10, Art III . the obligation of a contract is impaired when its terms and conditions are changed by law or by a party without the consent of the other, thereby weakening the position or the rights of the latter. IF a tax exemption granted by law and of the nature of a contract between the taxpayer and the government is revoked by a later taxing law, the said law shall not be valid, because it will impair the obligation of contract.
5. Prohibition against infringement of religious freedom Sec 5, Art III, it has been said that the constitutional guarantee of the free exercise and enjoyment of religious profession and worship, which carries the right to disseminate religious belief and information, is violated by the imposition of a license fee on the distribution and sale of bibles and other religious literatures not for profit by a non-stock, non-profit religious corporation.
6. Prohibition against appropriations for religious purposes, sec 29, (2) Art. VI, Congress cannot appropriate funds for a private purpose, or for the benefit of any priest, preacher or minister or for the support of any sect, church except when such priest, preacher, is assigned to the armed forces or to any penal institutions, orphanage or leprosarium.
7. exemption of all revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes from income, property and donor’s taxes and custom duties (sec. 4 (3 and 4) art. XIV
8. Concurrence by a majority of all members of Congress in the passage of a law granting tax exemptions. Sec. 28 (4) Art. VI
9. Congress may not deprive the Supreme Court of its jurisdiction to review, revise, reverse, modify or affirm on appeal or certiorari, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment or any penalty imposed in the relation thereto.
1. Observance of due process of law and equal protection of the laws. (sec, 1, Art. 3) Any deprivation of life , liberty or property is with due process if it is done under the authority of a valid law and after compliance with fair and reasonable methods or procedure prescribed. The power to tax, can be exercised only for a constitutionally valid public purpose and the subject of taxation must be within the taxing jurisdiction of the state. The government may not utilize any form of assessment or review which is arbitrary, unjust and which denies the taxpayer a fair opportunity to assert his rights before a competent tribunal. All persons subject to legislation shall be treated alike under like circumstances and conditions, both in the privileges conferred in liabilities imposed. Persons and properties to be taxed shall be group, and all the same class shall be subject to the same rate and the tax shall be administered impartially upon them.
2. Rule of uniformity and equity in taxation (sec 28(1)Art VI) All taxable articles or properties of the same class shall be taxed at the same rate. Uniformity implies equality in burden not in amount. Equity requires that the apportionment of the tax burden be more or less just in the light of the taxpayers ability to bear the tax burden.
3. No imprisonment for non-payment of poll tax (sec. 20, Art III) A person cannot be imprisoned for non-payment of community tax, but may be imprisoned for other violations of the community tax law, such as falsification of the community tax certificate, or for failure to pay other taxes.
4. Non-impairment of obligations and contracts, sec 10, Art III . the obligation of a contract is impaired when its terms and conditions are changed by law or by a party without the consent of the other, thereby weakening the position or the rights of the latter. IF a tax exemption granted by law and of the nature of a contract between the taxpayer and the government is revoked by a later taxing law, the said law shall not be valid, because it will impair the obligation of contract.
5. Prohibition against infringement of religious freedom Sec 5, Art III, it has been said that the constitutional guarantee of the free exercise and enjoyment of religious profession and worship, which carries the right to disseminate religious belief and information, is violated by the imposition of a license fee on the distribution and sale of bibles and other religious literatures not for profit by a non-stock, non-profit religious corporation.
6. Prohibition against appropriations for religious purposes, sec 29, (2) Art. VI, Congress cannot appropriate funds for a private purpose, or for the benefit of any priest, preacher or minister or for the support of any sect, church except when such priest, preacher, is assigned to the armed forces or to any penal institutions, orphanage or leprosarium.
7. exemption of all revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes from income, property and donor’s taxes and custom duties (sec. 4 (3 and 4) art. XIV
8. Concurrence by a majority of all members of Congress in the passage of a law granting tax exemptions. Sec. 28 (4) Art. VI
9. Congress may not deprive the Supreme Court of its jurisdiction to review, revise, reverse, modify or affirm on appeal or certiorari, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment or any penalty imposed in the relation thereto.
Inherent- those not embodied in the constitution.
a. Taxes may be levied only for a public purpose or a purpose affecting the inhabitants of a state or taxing district as a community and not merely as individuals. The tax must be used for the support of the government or for the promotion of community welfare, such as promotion of science, agriculture, industry, commerce, financing educational activities, construction and maintenance of roads, bridges, piers, etc.
b. Power to tax is limited to territorial jurisdiction of the state. The government can impose taxes only on persons and properties within its territorial jurisdiction, except when there is privity of relationship between the government and the person subject to tax, wherein the jurisdiction of the government remains, wherever the taxpayer may be.
c. Prohibition against delegation of taxing power- legislative power cannot be delegated, except
1. Delegation to the president- for purposes or practicality and expediency, the constitution expressly allows congress to authorize the president to fix within specified limits, and subject to such limitations and restrictions as it may, impose tariff rates, import or export quotas, tonnage and wharfage dues, and other duties or impost.
SITUS OF TAXATION- literally means the place of taxation, or the country that has jurisdiction to levy a particular tax on persons, property, rights or business.
SITUS OF PERSONS
1. Residence tax- place where the person resides
2. Income Tax-
a. citizenship, or the country of which he is a citizen
b. legal residence
c. place where the income is derived.
3. Estate Tax- residence of the decedent at the time of his death
4. Donor’s Tax- residence of the donor at the time of donation
5. Business/occupation tax- where the business is done or the occupation is engaged in;
SITUS OF TAXATION OF PROPERTY
1. Real Property- location of the property
2. Tangible personal property- location of the property
3. Intangible personal property- domicile or residence of the owner
NATURE OF THE POWER OF TAXATION
1. Legislative- this power can only be exercised by the law making body (Congress) not be the executive or the judicial branch of the government, except when delegated by the national legislative body to a local legislative body or to the executive branch, subject to limitations as may be provided by law;
2. Inherent in sovereignty- the power exists as an incident or attribute of sovereignty, as it is essential to the existence of every government. The power can therefore be exercised even without the constitution or any law expressly conferring such power.
1. Delegation to the president- for purposes or practicality and expediency, the constitution expressly allows congress to authorize the president to fix within specified limits, and subject to such limitations and restrictions as it may, impose tariff rates, import or export quotas, tonnage and wharfage dues, and other duties or impost.
SITUS OF TAXATION- literally means the place of taxation, or the country that has jurisdiction to levy a particular tax on persons, property, rights or business.
SITUS OF PERSONS
1. Residence tax- place where the person resides
2. Income Tax-
a. citizenship, or the country of which he is a citizen
b. legal residence
c. place where the income is derived.
3. Estate Tax- residence of the decedent at the time of his death
4. Donor’s Tax- residence of the donor at the time of donation
5. Business/occupation tax- where the business is done or the occupation is engaged in;
SITUS OF TAXATION OF PROPERTY
1. Real Property- location of the property
2. Tangible personal property- location of the property
3. Intangible personal property- domicile or residence of the owner
NATURE OF THE POWER OF TAXATION
1. Legislative- this power can only be exercised by the law making body (Congress) not be the executive or the judicial branch of the government, except when delegated by the national legislative body to a local legislative body or to the executive branch, subject to limitations as may be provided by law;
2. Inherent in sovereignty- the power exists as an incident or attribute of sovereignty, as it is essential to the existence of every government. The power can therefore be exercised even without the constitution or any law expressly conferring such power.
PURPOSE OF TAXATION
1. Primary- to provide funds or property with which the government discharges its appropriate functions for the protection and general welfare of its citizens.
2. Non revenue objectives-
a. to strengthen anemic enterprises by granting them tax exemptions or other conditions or incentives for growth;
b. to protect local industries against foreign competition by increasing import taxes
c. as a bargaining too in trade negotiations with other countries
d. to counter the effects of inflation or depression
e. to reduce inequalities in the distribution of wealth
f. to promote science and invention, finance educational activities or maintain and improve the efficiency of local police forces.
g. to implement police power and promote general welfare.
1. Primary- to provide funds or property with which the government discharges its appropriate functions for the protection and general welfare of its citizens.
2. Non revenue objectives-
a. to strengthen anemic enterprises by granting them tax exemptions or other conditions or incentives for growth;
b. to protect local industries against foreign competition by increasing import taxes
c. as a bargaining too in trade negotiations with other countries
d. to counter the effects of inflation or depression
e. to reduce inequalities in the distribution of wealth
f. to promote science and invention, finance educational activities or maintain and improve the efficiency of local police forces.
g. to implement police power and promote general welfare.
ASPECTS OF TAXATION
1. Levying or imposition- legislative act
2. Collection of tax levied- administration
BASIC PRINCIPLES OF A SOUND TAX SYSTEM. (IMPT!)
1. Fiscal Adequacy- The sources (proceeds) of tax revenue should coincide with and approximate needs of government expenditures. The sources of revenue should be sufficient and elastic to meet the demands of public expenditures;
2. Theoretical Justice- The tax system should be fair to the average taxpayer and based upon his ability to pay.
3. Administrative Feasibility- The tax system should be capable of being properly and efficiently administered by the government and enforced with the least inconvenience to the taxpayer.
1. Levying or imposition- legislative act
2. Collection of tax levied- administration
BASIC PRINCIPLES OF A SOUND TAX SYSTEM. (IMPT!)
1. Fiscal Adequacy- The sources (proceeds) of tax revenue should coincide with and approximate needs of government expenditures. The sources of revenue should be sufficient and elastic to meet the demands of public expenditures;
2. Theoretical Justice- The tax system should be fair to the average taxpayer and based upon his ability to pay.
3. Administrative Feasibility- The tax system should be capable of being properly and efficiently administered by the government and enforced with the least inconvenience to the taxpayer.
TAXES AND TAX LAWS IN GENERAL
Taxes are the enforced proportional contributions from persons and property levied by the law making body of the state by virtue of its sovereignty for the support of the government and all public needs.
Tax is a forced burden, charge, exaction, imposition or contribution assessed in accordance with some reasonable rule of apportionment by authority of a sovereign state upon the persons or property within its jurisdiction, to provide public revenues for the support of the government, the administration of law, or the payment of a public expense.
Tax is a forced burden, charge, exaction, imposition or contribution assessed in accordance with some reasonable rule of apportionment by authority of a sovereign state upon the persons or property within its jurisdiction, to provide public revenues for the support of the government, the administration of law, or the payment of a public expense.
Essential characteristics of tax.
1. it is an enforce contribution
2. it is generally payable in money.
3. It is proportionate in character, usually based on the ability to pay
4. it is levied on persons and property within the jurisdiction of the state
5. it is levied pursuant to legislative authority, the power to tax can only be exercised by the law making body or congress
6. it is levied for public purpose
7. it is commonly required to be paid a regular intervals.
1. it is an enforce contribution
2. it is generally payable in money.
3. It is proportionate in character, usually based on the ability to pay
4. it is levied on persons and property within the jurisdiction of the state
5. it is levied pursuant to legislative authority, the power to tax can only be exercised by the law making body or congress
6. it is levied for public purpose
7. it is commonly required to be paid a regular intervals.
Tuesday, November 18, 2008
Salient Features of Republic Act No. 9504
§ The new law added the terms “statutory minimum wage” and “minimum wage earner” in Section 22 of the Tax Code of 1997, as amended.
§ The term statutory minimum wage shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board, as defined by the Bureau of labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). While the term minimum wage earner shall refer to a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned.
§ Section 24 provides that minimum wage earners as defined in Section 22(HH) shall be exempt from the payment of income tax on their taxable income. Moreover, the holiday pay, overtime, night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax.
§ A minimum wage earner or an individual who is exempt from income tax pursuant to the provisions of the 1997 Tax Code and other laws, general or special, shall not be required to file an income tax return.
§ The new law removes in Section 51, the provision stating that “individuals whose pure compensation income derived from sources within the Philippines exceeds Sixty thousand pesos (P60,000) shall file an
income tax return”.
§ Employers are also mandated not to deduct and withhold tax on wages on the income of a minimum wage earner and removes the provision in Section 79 providing “that no withholding of a tax shall be required where the total compensation income of an individual does not exceed the statutory minimum wage, or Five thousand pesos (P5,000.00) per month, whichever is higher.”
§ The new law also amended the provision on Optional Standard Deduction in Section 34, increasing the rate to 40% of gross sales or receipts for individuals subject to tax under Section 24, other than a nonresident alien. The Optional Standard Deduction is not available to taxpayers earning compensation income arising from personal services rendered under an employee-employee relationship.
§ The new law further accorded the option to corporations to elect a standard deduction in an amount not exceeding forty percent (40%) of its gross income as defined in Section 32.
§ Unless the taxpayer signifies in his return his intention to elect the optional standard deduction, he shall be considered as having availed of the itemized deductions allowed in Section 34. Such election when made in the return shall be irrevocable for the taxable year for which the return is made.
§ An individual who is entitled to and claimed for the optional standard deduction shall not be required to submit with his tax return such financial statements otherwise required under the Tax Code. However, said individual shall keep such records pertaining to his gross sales or gross receipts.
§ Corporations availing of the optional standard deduction are still required to submit with its tax return the financial statements required under the Tax Code. The said corporation shall also keep such records
pertaining to his gross income as defined in Section 32 of the Tax Code during the taxable year, as may be required by the rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
§ The new law increases the personal exemption of individuals to P50,000.00. It removes the personal exemptions amounting to P20,000.00, P25,000.00 and P32,000.00 for single, head of family and married individuals, respectively. Moreover, the definition of a “head of family” has been deleted in Section 35.
§ The new law increases the additional exemption from P8,000.00 for each dependent to P25,000.00 for each dependent, not exceeding four (4). § A ‘dependent’ means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect.
§ The additional exemption for dependent shall be claimed by only one of the spouses in the case of married individuals. And in the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children. Provided that the total of additional exemption that may be claimed by both shall not exceed the maximum additional exemptions allowed.
§ Repealing Clause. Any law, presidential decree or issuance, executive order, letter of instruction, administrative order, rule or regulation contrary to or inconsistent with any provision of this Act is hereby
amended or modified accordingly.
§ Effectivity Clause. This Act shall take effect fifteen (15) days following its publication in the Official Gazette or in at least two (2) newspapers of general circulation.
§ The term statutory minimum wage shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board, as defined by the Bureau of labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). While the term minimum wage earner shall refer to a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned.
§ Section 24 provides that minimum wage earners as defined in Section 22(HH) shall be exempt from the payment of income tax on their taxable income. Moreover, the holiday pay, overtime, night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax.
§ A minimum wage earner or an individual who is exempt from income tax pursuant to the provisions of the 1997 Tax Code and other laws, general or special, shall not be required to file an income tax return.
§ The new law removes in Section 51, the provision stating that “individuals whose pure compensation income derived from sources within the Philippines exceeds Sixty thousand pesos (P60,000) shall file an
income tax return”.
§ Employers are also mandated not to deduct and withhold tax on wages on the income of a minimum wage earner and removes the provision in Section 79 providing “that no withholding of a tax shall be required where the total compensation income of an individual does not exceed the statutory minimum wage, or Five thousand pesos (P5,000.00) per month, whichever is higher.”
§ The new law also amended the provision on Optional Standard Deduction in Section 34, increasing the rate to 40% of gross sales or receipts for individuals subject to tax under Section 24, other than a nonresident alien. The Optional Standard Deduction is not available to taxpayers earning compensation income arising from personal services rendered under an employee-employee relationship.
§ The new law further accorded the option to corporations to elect a standard deduction in an amount not exceeding forty percent (40%) of its gross income as defined in Section 32.
§ Unless the taxpayer signifies in his return his intention to elect the optional standard deduction, he shall be considered as having availed of the itemized deductions allowed in Section 34. Such election when made in the return shall be irrevocable for the taxable year for which the return is made.
§ An individual who is entitled to and claimed for the optional standard deduction shall not be required to submit with his tax return such financial statements otherwise required under the Tax Code. However, said individual shall keep such records pertaining to his gross sales or gross receipts.
§ Corporations availing of the optional standard deduction are still required to submit with its tax return the financial statements required under the Tax Code. The said corporation shall also keep such records
pertaining to his gross income as defined in Section 32 of the Tax Code during the taxable year, as may be required by the rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
§ The new law increases the personal exemption of individuals to P50,000.00. It removes the personal exemptions amounting to P20,000.00, P25,000.00 and P32,000.00 for single, head of family and married individuals, respectively. Moreover, the definition of a “head of family” has been deleted in Section 35.
§ The new law increases the additional exemption from P8,000.00 for each dependent to P25,000.00 for each dependent, not exceeding four (4). § A ‘dependent’ means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect.
§ The additional exemption for dependent shall be claimed by only one of the spouses in the case of married individuals. And in the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children. Provided that the total of additional exemption that may be claimed by both shall not exceed the maximum additional exemptions allowed.
§ Repealing Clause. Any law, presidential decree or issuance, executive order, letter of instruction, administrative order, rule or regulation contrary to or inconsistent with any provision of this Act is hereby
amended or modified accordingly.
§ Effectivity Clause. This Act shall take effect fifteen (15) days following its publication in the Official Gazette or in at least two (2) newspapers of general circulation.
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